Back to the prime of life

Chapter 216 Capital
Although Lu Changge possesses memories of two lifetimes, he is unfamiliar with venture capital firms from Russia. He even believes that Russia wouldn't have such companies, given that Russia has a very low presence in the economic lives of ordinary Chinese people, and we almost never consume or come into contact with any Russian products.

In reality, a number of companies, including JD.com, Alibaba, Xiaomi, Didi, Meituan, and ByteDance, are all backed by a common Russian venture capital firm called DST.

This Moscow-based investment firm has focused on internet investments since its founding in 2005, and in hindsight, it almost perfectly timed the global internet wealth creation boom.

The internet industry is essentially comprised of China and the United States, and this company thinks so too. So after initially investing in American companies such as Facebook, Twitter, and Airbnb, it is now turning its attention to China.

Unfortunately, Lu Changge was unaware of these things, which is why he was so surprised.

Of course, none of that matters. We've already met, and Xu Huiya introduced us, so let's chat.

These kinds of business meetings take place in very elegant coffee shops. While they may not be as well-known as Starbucks, they far surpass it in terms of class and quietness. They are undisturbed, private enough, and not as lively as restaurants.

Hsu Hui-ya usually likes to go to teahouses, but Russians probably don't like drinking tea, so she ended up choosing this coffee shop.

When Lu Changge entered, he noticed a row of luxury cars parked at the entrance. If this were his previous life, he probably would never have come to a place like this.

"...Over the past few years, DST has made a series of successful investments, especially our investment in Facebook, which is considered one of the most enviable investments. As you know, every company has its own investment style, and even the investment style of each boss varies from person to person. Today is the first time I have met with Mr. Lu. If all goes well, I will persuade my boss to come to China. I believe we will have a pleasant experience together."

Ivanovic spoke in English, and Li Ming couldn't understand a word she said.

Lu Changge is in a tough spot because he has no experience living or working in English. Although he did well on the exam, it was far from being a natural conversational speaker. So, it's wishful thinking to think that he can suddenly gain language skills after being reborn.

Fortunately, Xu Huiya was a good translator, and Ivanovich spoke slowly, so Lu Changge was able to fully understand his meaning after piecing it together from various sources.

“I also hope we can get along well. Mr. Ivanovich, what are you here to discuss? Or let me be more direct, what kind of deal does your company want to achieve?” Lu Changge asked.

After Xu Huiya translated, the big Russian man laughed and said, "You're very direct."

"Of course, you have already shown sincerity by wanting to communicate with me in person despite geographical and language barriers, so I also have to show my sincerity."

“OK. Here’s the thing, our company has been focusing on the US market for the past few years. In the last six months, we started paying attention to Chatter. After making some inquiries, we discovered that the main person in charge of its team and the boss behind it are from China. So I asked my friend, Ms. Xu. She talked to me a lot about your other company, but to be honest, DST is interested in Chatter.”

“He has much better taste than you,” Lu Changge said, glancing at Xu Huiya.

Ivanovic didn't understand the Chinese sentence and asked Xu Huiya, "What did he say?"

“He said you have better judgment than I do. Because when we first invested in Lumang, we also briefly talked about Pulsego, which is the Chinese version of Chatter. However, for various reasons, we ended up investing only in Lumang.”

"Why?" The foreigner shrugged, clearly not understanding Titanium Capital's initial choice.

Those in the industry understand that Lumang is essentially just an online clothing store. No matter how successful the brand becomes, it's still just a clothing store. Of course, that doesn't mean you can't make big money selling clothes; after all, the owner of ZARA is a regular on the global rich list.

But for investment companies, potential is one aspect, and another aspect is growth rate, which is the efficiency of capital utilization.

What is the growth rate of internet companies?
What is the growth rate of apparel companies?
Internet companies that adopt the right business model can become global giants in just a few years, but it's hard to imagine how long it would take for a clothing company to reach the same scale.

Hsu Hui-ya answered honestly, "Because in China, what Pulseego wants to do has a very strong competitor, so strong that it is almost invincible."

"You mean Tencent? It's the same. There are giants like that in the US market too. But Ms. Xu probably doesn't know how fast Chatter has grown in the US; it's disruptive." The Russian man wasn't there to educate another investment company about industry trends. He quickly turned to Lu Changge. "Mr. Lu, our company has two important characteristics: First, we almost never invest in companies valued below $10 billion. Second, we almost never demand any decision-making power in the companies we invest in. We don't care about the board members, we don't even have observers, and we'll pay a high price."

Lu Changge's eyebrows twitched slightly. He felt that this guy hadn't finished speaking. "You sound like angels, but even angels need something, right?"

"Haha, Mr. Lu can joke. Yes, investment means that returns are required. In this regard, DST will focus on two points: first, high valuation, and second, rapid expansion."

The two points he mentioned are actually the same in Lu Changge's understanding, and are also determined by the short-sightedness of capital, namely, high returns.

The so-called high valuation is not a high valuation in the general sense. What constitutes a high valuation, and what constitutes a low valuation? Simply put, it's a valuation that exceeds market expectations. A high valuation allows founders to reap greater returns on their investments, but at the same time, founders bear the pressure to increase the company's valuation.

That sounds more normal; otherwise, she really would be an angel.

As for rapid expansion, this basically corresponds to high valuations, meaning they don't like companies that operate conservatively, but rather encourage startups to aggressively seize the market.

Is that a correct understanding?

DST's investment strategy involves listening to grandiose stories and actively embellishing them before launching them to market. Their claims of not demanding board seats or trusting the founders are merely euphemisms. The real intention is to capitalize on the market potential of the business narrative, aiming to profit and exit once the story has gained traction.

So this isn't an angel at all, it's clearly a bloodthirsty shark with an insatiable appetite.

Of course, capital behavior doesn't need to be judged from a moral perspective; what Lu Changge needs to consider is whether it's beneficial to himself.

High valuations and rapid expansion are not a problem for him, because the industry he chose is destined for rapid expansion. Even if he shows his talent, he has already reached the point where quantitative change leads to qualitative change.

The problem lies with chatter. We just had a conference call this morning. Of course, the company needs funding, but social media is a highly sensitive industry. If we're not careful, malicious individuals can exploit user privacy, the US-China competition, and other issues.

Therefore, in this respect, what he needs is not capital from Russia, but rather capital from a company with a certain influence in the United States.

Of course, on the other hand, he doesn't understand DST, and just because it's Russian doesn't mean it has no influence in the US or that its capital has no homeland. So that's arbitrary, and this point needs further investigation; we can't just listen to this Russian guy spouting nonsense.

Pulsego, which primarily targets the domestic market, is fine. A venture capital firm that doesn't interfere in operations but is willing to provide funding is already quite good. Moreover, it has invested in Facebook, so it should be a well-known figure in the venture capital world. Therefore, having 'DST Investment' as a corporate endorsement is certainly a good thing for Pulsego.

These pros and cons seem complex, but Lu Changge actually completed this entire thought process in a few seconds. "There seems to be a contradiction in your words. Chatter isn't a company valued at over $10 billion. Don't you only invest in this type of company?"

“That’s the general case, because our experience investing in Facebook has made us realize the potential and scale of the social market, and because we have experience, we are more willing to give it a high valuation.”

Xu Huiya felt something was off after translating the sentence. It sounded like... DST was chasing after Lu Changge and casting their ballots? Is Chatter already that popular in the US?

Lu Changge remained calm and composed. "They're both social media platforms. Once Chatter takes off, it will challenge Facebook's market position to some extent. After all, having a social media traffic portal means anything can happen. How do you plan to balance and prioritize between us and them?"

"Challenge Facebook? Are you sure you want me to translate that?"

“If he says he understands social skills, then he knows what I mean.”

Okay, Hsu Hui-ya translated it word for word.

In fact, Ivanovic didn't mock him at all. He nodded seriously, acknowledging Lu Changge's question, and said, "Mr. Lu, do you really think a Chinese person and a Chinese company can control American social media?"

"What do you mean?"

"We've studied Chatter and Pulsego. You designed a rather complex nominee shareholding model, specifically hired a CEO with US citizenship, and even traveled all the way to the US to list your product... All of this indicates that you have concerns about Chatter's future prospects, which is why you took precautions in advance. Furthermore, what is the US and Silicon Valley like? Even if you don't understand in China, your American colleagues in the company will definitely tell you why a company with such obvious potential like Chatter isn't very active in investment and financing. The financial crisis is one explanation, but not the whole story. In fact, internet technology companies stood out during the financial crisis. Isn't that surprising?"

Xu Huiya translated as she listened, and this was where the real substance came in. She was increasingly surprised as she listened. If what Ivanovich said was true, then she would have to reassess Lu Changge in her mind. "...Because the market is watching to see what actions Americans will take against this social media app with strong Chinese backing, and this unknown risk seriously affects Chatter's future and valuation. But if you accept DST's investment, you'll have another way out. Facebook is a social media giant, and they won't ignore Chatter."

Lu Changge was now 100% serious.

He began to grasp the extreme intelligence and extreme risk-taking of capital, and he understood it completely.

What DST considered "clever" was that they saw both the huge potential and the huge hidden dangers of chatter. What they considered "extreme risk-taking" was that they believed they could profit from these hidden dangers if they operated properly.

Moreover, it involves huge arbitrage profits.

Because other investment companies are still observing.

So, what does earning this kind of money have to do with hard work or diligence? It all comes down to one's mindset.

Even Lu Changge had to admit that what Ivanovich said was true and consistent with his plans. His experiences in his later life led him to conclude that Chatter would inevitably encounter obstacles beyond commercial competition, and he also remembered that WhatsApp was later sold to Facebook.

At this juncture, an investment company emerged that could provide funding without interfering in operations, and also facilitate potential future transactions. It was indeed a perfect fit.

More importantly, since it knows this concern can be eliminated, it will give a more accurate valuation when valuing the chatter. At least it didn't use this concern to deliberately lower the price.

This allows chatter to obtain enough funds at minimal cost.

"Mr. Ivanovich, what are the conditions of DST?"

"10 billion US dollars, 20% of the shares."

Hsu Hui-ya was getting restless. DST was known for its high valuation, but this valuation was too high, excessively high.

But Lu Changge understood that the greatest significance of social software lies in its strategic value. Since they claimed to understand social media, they knew how much Facebook was willing to pay.

Of course, it is indeed too high, and at this stage, Chatter does not need that much capital, nor does it want to give away such a high equity stake in the first round.

Is this the only option?

"Of course not, there's also the option of $5 million and 10%."

Haha, they really know how to torture people. If you want to accept a higher valuation, you have to pay a higher percentage. That's normal. For them, high input means high output.

Finally, he added, "We would prefer Mr. Lu to accept the first option, which is also the option that gives us more confidence in chatter."

Lu Changge smiled. "If I didn't have confidence, I wouldn't have started this. And what happened afterward gave me, and our team, even greater confidence, so there's no doubt about it. As an investment company, what we need is not only a promising industry, but also an excellent founder—I mean, not the kind who's eager for quick success. Internet companies don't just have one round of profitability; we need to leave enough room for subsequent financing."

It's common sense that the later the financing round, the lower the cost, because the valuation increases significantly, and the difference in cost for the same amount of money becomes enormous.

"So can I assume that Mr. Lu has accepted the second option?"

"Give me some time to think about it." Xu Huiya was stunned, thinking that this kid was really calm. He nodded and got fifty million US dollars, and he still needed to think about it. "After all, my colleagues and I thought we were talking about Lu Mang today, so it was very sudden."

Ivanovic also expressed her understanding, saying, "As long as Chatter's investment goes smoothly, Luman will not be a problem, and I have the decision-making power regarding the size of the funds."

Hsu Hui-ya paused for a moment.

Lu Changge asked, "What's wrong? Is it for translation?"

The woman rolled her eyes. "I'm provoked!"

Luman is a project she's been proud of for the past two years, but it sounds like a small caramel project!
(End of this chapter)